Growing Pain

​

Olam International was incorporated in Jul-1995 and listed in SGX in Feb-2005 at $0.708 per share.

The firm is in food and agri-business supplying food, ingredients, feed and fibre to about 17,300 customers worldwide. It operate in over 60 countries through a supply chain network which includes farming, sourcing directly or indirectly through 5M farmers. Value chain include processing, distribution and trading operations. 

​

In 2020, Olam restructured her businesses into:

• Olam Food Ingredients (OFI)

  • Nuts, spices, dairy, coffee, cocoa​

  • Beverages, bakery, confectionery, snacking, culinary

• Olam Global Agri (OGA)

  • Food & feed​

  • Fibre & agri services

• Olam International (OIL)

  • Holding company to OFI and OGA.

  • Incubate, nurture new growth engine

​

Financial

Revenue have growing rapidly at a CAGR of 17% since 2004. This was accompanied by deteriorating gross margin. Scale helped to reduce relative expenses from 17.8% in FYJun04 to 7.6% in FYDec20. 

However, the steep fall in GM continues to pressure operating margin which started to decline from FY16.

​

Return on Assets started to decline to a lower range from FY2016 to FY2019. The sharp drop in FY2020 was mostly due to the impact of COVID-19 on businesses and global supply chains. 

​

Risk

Debt have increased from $886M in FY04 to about $13B in FY20. 

Z-score indicate that balance sheet strength have deteriorated over the years though still relatively healthy. Current ratio was 1.4.

​

Rights Issue

On 22-Jun-2021, the company announced a 3-for-20 rights issue at $1.25 per rights share to raise $601.7M.

Proceed is to partially repay debt used to complete acquisition of Olde Thompson and for future growth. 

​

Strategic Plan

1. Complete separation of OFI and OGA by end 2021.

2. Demerger and IPO of OFI by 2H-2022

3. Demerger and IPO of OGA. No schedule given.

​

Opinion

Olam play an important role in the world's food and agri supply chain. The business is also enormously complex. At the same time, capital intensity have increased substantially over the decade. 

Carving & spinning out her businesses into OFI and OFA for future IPO is a step in the right direction. This would provide greater transparency to each entities to help improve performance.

​

As of FY20, the company did deliver decent dividends to her shareholders. The recent rights issue could negate some of this gain unless equity holders sink more cash into the business. 

​

As a business, Olam performance had been mediocre. The company thus far had not been able to take advantage of growing scale to generate steady and higher operating margin.

It is left to be seen, if spinning off OFI and OGA could lead to improvement in performance.